GT Biopharma, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; filed May 15, 2018. GT Biopharma is a clinical-stage biopharmaceutical company developing immuno-oncology and CNS drug candidates. It reported no product sales or licensing revenue.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $3.473 million | $144,000 |
| Selling, general and administrative | $3.687 million | $1.394 million |
| Operating loss | $7.160 million | $1.538 million |
| Interest expense | $2.931 million | $3.520 million |
| Net loss | $10.091 million | $5.058 million |
| Operating cash used | $4.226 million | $650,000 |
- Gross profit and gross margin were not meaningful because there was no revenue.
- Cash and cash equivalents were $2.870 million at March 31, 2018, versus $576,000 at December 31, 2017. Cash increased by $2.294 million during the quarter, including $6.522 million of net financing cash flow.
- Total current liabilities were $5.076 million, including $2.932 million of convertible debentures net of discount and a $31,000 line-of-credit balance. The January notes had $7.761 million aggregate principal and were due July 22, 2018.
- Total assets were $257.333 million, largely comprising $253.777 million of intangible assets recorded in connection with the 2017 Georgetown Translational Pharmaceuticals acquisition. Accumulated deficit was $279.589 million.
- Basic and diluted loss per share was $0.20, compared with the revised comparative figure of $26.36 in Q1 2017. Weighted-average shares were 50.1 million versus 191,847; the periods are not directly comparable. The filing’s early adoption of ASU 2017-11 also revised 2017 results, eliminating a warrant-liability gain and changing reported loss per share.
Changes versus the prior comparable period
- Operating expenses rose to $7.160 million from $1.538 million. R&D growth reflected added employees, consultant costs, and preclinical and clinical expenses; management said R&D included $2.9 million of noncash compensation. SG&A increases included professional fees, public and investor relations costs, and loan costs.
- Net loss approximately doubled, while operating cash use increased substantially. Interest expense declined, primarily because certain debt issuance costs associated with debt settled in September 2017 were no longer being incurred.
- The company raised $7.055 million of proceeds in January through senior convertible notes issued at a 10% original issue discount, together with five-year warrants for 1,694,440 shares. The notes and warrants have an initial conversion/exercise price of $4.58, subject to specified adjustments.
Outlook, risks, and other significant matters
- Going concern: The company has no approved products, recurring operating losses, and negative operating cash flows. Management said substantial additional financing is required and that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management believed planned financing efforts and cost reductions, if successful, could fund operations for at least six months from issuance of the financial statements; it gave no assurance of success.
- Pipeline outlook: Management expected to file the OXS-3550 IND in mid-2018 and potentially begin a Phase 1 trial in the second half of 2018. It expected OXS-1550 Phase 2 data in the second half of 2018. GTP-004’s healthy-volunteer study was completed in January; GTP-011 data were also expected in the second half of 2018. These are stated expectations, not reported outcomes.
- Management anticipated increased direct clinical costs in the second half of 2018, but expected Q2 SG&A to be lower than Q1 due primarily to reduced executive salaries and professional fees.
- Disclosure controls and internal control over financial reporting were reported ineffective at March 31, 2018. Material weaknesses included inadequate segregation of duties and risks of executive override, attributed to a small staff and limited established policies.
- Legal matters included a $73,898 claim for consulting services and an arbitration award of $207,783 plus $34,699 interest in favor of MultiCell; the company said it had counsel. The filing reported no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
- Cash balances exceeded FDIC insurance limits by $2.617 million. The company also disclosed $270,000 of minimum office lease payments through 2020 and executive compensation commitments.
Important facts for investors to verify
- Whether the company obtained sufficient financing to address its going-concern warning and repay or otherwise resolve the notes due July 22, 2018.
- The notes’ final outstanding balance, conversion or adjustment terms, and potential dilution from conversion and warrants.
- Subsequent clinical and regulatory progress for OXS-3550, OXS-1550, GTP-004, and GTP-011, including whether the forecast milestones occurred.
- Cash burn, expense trends, and the effect of planned cost reductions on the company’s operating runway.
- Progress remediating the disclosed material weaknesses in financial reporting controls and the status of the legal claims and arbitration award.